Does aerospace work qualify for R&D tax relief?

This note covers airframe, propulsion, systems and avionics businesses, aerostructures and component manufacturers at every tier, MRO and design organisations, and space and satellite businesses.

Where the R&D usually is

The qualifying work is where a requirement could not be met by anything existing, and it was not clear at the outset how — or whether — it could be met at all.

That covers design against competing constraints where the trade is not soluble by established method: weight against stiffness, thermal management in a volume that has none to spare, fatigue life under a load spectrum no existing part is qualified for. It covers materials and process development — new alloys or composite layups, joining and repair methods, additive processes where behaviour in the finished part is not predictable from the datasheet. It covers systems, control and avionics work where the behaviour of the integrated system cannot be deduced from its components. And it covers manufacturing and assembly methods developed because the part cannot be made to tolerance or rate by an existing route.

Two points that help. The advance need not be visible in the finished aircraft — a process improvement is as much an advance as a product one. And a project that is abandoned still qualifies for the period in which the work was done, because what counts is the advance sought, not the advance achieved.

Certification is not R&D — but the work certification forces can be

This is the distinction the sector gets wrong most often, in both directions, and HMRC has published on it directly.

The rule is that obtaining regulatory certification for a product which already has proven functionality does not qualify. Qualification testing, compliance demonstration, certification reports, witness testing, airworthiness submissions and the documentation that supports them are the process of showing that a design you already have meets a standard you already know. That is not resolving a technological uncertainty; it is evidencing an answer.

The exception matters just as much: if certification requires further advances in science or technology to materially improve functionality, then the activity aimed at achieving those advances qualifies. So where a test campaign reveals that the design cannot meet the requirement, and engineers have to develop something new to close the gap, that development is R&D — and the uncertainty it resolves is genuine precisely because the test found it.

The practical test is what the activity was for. Work done to find out whether something can be made to work is inside. Work done to prove to a regulator that something which already works does work is outside, however demanding, expensive and safety-critical it is. The same rig, the same engineers and the same month can contain both, which is why aerospace claims need the boundary drawn at the activity level rather than the programme level.

Where the programme boundary falls

Aerospace programmes run for years, and the claim is a subset of each period, not the programme.

R&D begins when work to resolve the uncertainty starts and ends when the advance is achieved, or the work stops. HMRC puts it plainly: testing that takes place after the uncertainties have been resolved will not qualify. Once the design is frozen and the remaining work is qualification, first article inspection and production readiness, the R&D has ended even though the programme has years to run.

Where an uncertainty is still live at the year end, that is not a problem — the period’s claim stands on the attempt, and the narrative should say where the work had got to rather than describing a programme as complete. But the position has to be re-established each period, because the advance sought is tested against what is publicly known at the time, and on a long programme that moves.

Tiered supply chains and who claims

Most aerospace businesses sit somewhere in a chain, and entitlement is the question that decides the claim.

For accounting periods beginning on or after 1 April 2024, the merged scheme asks who intended and contemplated the R&D. Where a prime or a tier one issues a specification and leaves you to work out how to meet it, the development is usually yours. Where you have been engaged to carry out a development programme the customer has defined and directed, it usually is not. That distinction — a specified deliverable against a commissioned development — is the one to apply to your own contracts, and the full test is in contracted-out R&D.

For earlier periods, still live on open years and amendments, the analysis differs, and two 2024 tribunal decisions are relevant to contractors working to customer specifications. Both are covered in engineering and manufacturing, which also carries the process and first-article material this sector shares.

Funding, and work done outside the UK

Aerospace is heavily supported, and programme funding is the norm rather than the exception. For accounting periods beginning on or after 1 April 2024, a grant does not reduce an R&D claim in the way it once did; for earlier periods it could, and the treatment turned on the terms of the award. Both positions are in how grant funding affects an R&D claim.

International work packages need care. For accounting periods beginning on or after 1 April 2024, the overseas restriction reaches payments to contractors for R&D undertaken abroad and externally provided workers outside UK PAYE. It does not reach your own employees. Where it does apply, expenditure can still qualify if conditions necessary for the work are not present in the UK — and in this sector a test facility argument is more plausible than in most, since the relevant conditions can include access to machinery or facilities. Cost and the availability of workers are expressly excluded and are the only exclusions.